BFCM Template for Maximizing EBITDA

Alright ladies and gents, it's that time of the year again - Black Friday Cyber Monday (BFCM), where shopping carts are filled, deals are flying left and right, and you’re in the virtual octagon that is the Facebook Ads Manager with your competitors throwing virtual elbows. And in the eComm/retail hustle, there's more to success than just throwing discounts around.

Enter the North Star profitability measurement: EBITDA

In this article, we're going to outline a step-by step ‘quick and dirty’ way to model your EBITDA during your BFCM campaign and each lever associated with the scenarios.

By the end of the article, you will have access to the spreadsheet you can use (be sure to make a copy for yourself!) and know exactly how to use it. Then, you can look at the scenarios, and pick one to go deeper on.

Before we dive into the spreadsheet let’s first do a primer on the levers of EBITDA:

1. Selling Price

This one should be obvious, but changing your selling price will ultimately impact your EBITDA.

2. Discounts

Discounts are booked as gross revenue deductions. Therefore, increased discounting will ultimately cause pressure on gross margin, decreasing EBITDA. We previously wrote a piece on the effect of discounting on cash flow here

3. Cost of Goods

Cost of goods sold is really a big one for a lot of companies. Especially if you have 50% or lower gross margins (product + cost of delivery). If your gross margins are 50%, that means literally half your P&L is immediately swallowed up every time you make a sale - before Facebook / Google / etc come in for their bite of your revenue.

Decreasing your COGS is a critical initiative for a scaling consumer brand. In many cases, products with gross margins below 50% can no longer viable as online exclusive businesses.

Includes: Cost of product, cost of delivery, payment processing, absorbed freight

4. Marketing

Marketing is the most important/most easily manipulated. Sure, COGS may be a higher % of revenue than marketing for a lot of brands, but realistically you can’t hugely manipulate COGS one way or another.

Marketing on the other hand can be greatly impacted day to day. Look to increase marketing efficiency as your main lever in increasing EBITA dollars.

Includes: Paid social, paid search, OOH, content, brand marketing.

5. OPEX

Keep this one simple; your fixed costs.

Includes: Salaries, benefits, softwares, rent.

Great, congratulations you have an MBA now. Moving onto the model.

Firstly, we are going to start with ad spend as an input in the top table. Pick how much money you might spend over any period of time, this example being BFCM. Then the spreadsheet will automatically create a number of scenarios with a deteriorating MER as ad spend scales up, and an improving MER as ad spend scales down. You can ratchet up/down spend and MER as you please using the input table at the top of the spreadsheet.

Then, fill in the rest of your inputs. Hopefully you have a good sense for where your COGS, cost of delivery, OpEx, as well as fixed operating expenses shake out for any given month.

Once you have filled in your inputs, then we can assess the scenarios the model has given us.

The key to using this scenario model is having a good sense for what scenarios are achievable. So our baseline scenario in Row 30 is a $1M ad spend at a 3.50 MER, and we can see that yield us an EBITDA of $401,250. If that feels achievable, let’s compare it to other scenarios that also feel achievable and decide which one we like the most.

For instance, "In another scenario, if I spent more, would I make more money?"

In Row 31 - we can see in our example here, that if we spent an extra $100k to get up to $1.1M, and MER decreases by 0.25, we actually only make $335,563 in EBITDA; assuming a 15% discount. So we would actually make less profit by ratcheting up Ad spend, despite a pretty modest decrease in efficiency. We would have a bit more revenue, but also a bit less profit:

This introduces the idea of diminishing marginal returns on ad spend. Or as Taylor Holiday, from renowned performance marketing agency Common Thread Collective, calls it; ‘The Efficiency Frontier.’ In other words, at some point, the decreases in marketing efficiency outweigh the extra revenue and continuing to spend will cause EBITDA margin contraction; this is especially true if there is heavy discounting as those gross revenue deductions will weigh on gross profit and require a higher MER to achieve the same level of contribution margin.

Ok, so now we have a set of scenarios that we’ve built out. Time to pick one. This is where you’ll need to consult with your broader team and decide which scenario feels the most realistic, and also optimizes for the goal at hand.

It is important to keep in mind that that goal may not actually be EBITDA - maybe you have a very heavy subscription business and your primary objective is to maximize customer acquisition during BFCM and therefore you are willing to throw EBITDA out the window for now.

But for now let’s just continue on with maximizing EBITDA as our primary goal.

We can identify that in the model as it stands right now - our maximum EBITDA dollars is actually a scenario where we spend $700,000 at a 4.25 MER, which yields us $461,063 in EBITDA.

The reality is that there are a lot of other moving parts to consider when choosing a scenario - including returning customer revenue, working capital, marketing calendar, among others.

This exercise is meant really to create many scenarios quickly to then choose one to go deeper on planning for. This model can also be used as a starting point for quarterly and annual planning, however we would recommend creating a true bottoms up financial model that can account for all the moving parts of your P&L and balance sheet.

So, happy BFCM to all and to all a strong EBITDA.

Note: Credit to both Taylor Holiday of CTC and Sean Frank of Ridge for the inspiration for this piece. Great agency and great wallets respectively :-)